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Massachusetts District Court Denies Class Certification and Grants Summary Judgment Because Franchisees Not Employees
By Gerald L. Maatman, Jr., Brandon Spurlock, and Shaina Wolfe
Duane Morris Takeaways – In Patel, et al. v. 7-Eleven, Inc., et al., 2022 WL 4540981, No. 17-11414 (D. Mass. Sept. 28, 2022), Judge Nathaniel Gorton of the U.S. District Court for the District of Massachusetts granted summary judgment in favor of 7-Eleven, as a franchisor, and denied Plaintiffs’ motion for class certification because franchisees were not employees under Massachusetts state law. In analyzing the state independent contractor statute, the Court determined that the obligations the franchisees undertook pursuant to the franchise agreement did not amount to “services” for purposes of the statute and Plaintiffs, therefore, were not employees. This ruling is important because it provides guidance for companies operating under a franchisor/franchisee business model on how to combat arguments that franchisee agreements create an employee/employer relationship and obligate franchisors to cover a myriad of legal costs for their franchisees.
Background Of The Case
Plaintiffs, a group of franchisee store owners and operators, brought a putative class action against 7-Eleven alleging that Defendant misclassified them as independent contractors in violation of the Massachusetts Independent Contractor Law. Id. at 1. Two of the named Plaintiffs entered into franchise agreements directly with 7-Eleven and three as corporate entities. Id. The franchise agreements outlined the obligations of the franchisees and included language that the franchisee agreed to hold itself out to the public as an independent contractor. Id. Under the agreement, the franchisee also agreed to pay several types of fees to 7-Eleven, including a franchise fee, gasoline fee, and down payment fee. Id. at 2. Plaintiffs filed a class action in Massachusetts state court and Defendant removed it on diversity grounds. Id. Both parties filed cross-motions for summary judgment, and Plaintiffs filed a motion for class certification. Id. The District Court granted summary judgment in favor of 7-Eleven, and Plaintiffs appealed to the First Circuit where the case was remanded to allow the District Court to first weigh on the issue, which the First Circuit certified as “[w]hether the three-prong test for independent contractor status … applies to the relationship between a franchisor and its franchisee…” Id.
On remand, the District Court analyzed the elements for the independent contractor test under Massachusetts law, including: (1) freedom from control and direction; (2) service is performed outside the usual course of business; and (3) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service. Id. at 3. Defendant argued that franchisees do not perform services for 7-Eleven, and in fact, 7-Eleven actually provides services to the franchisee in exchange for payment; and that 7-Eleven was not a direct employer where the franchise agreement was entered into by corporate entities. Id. at 4.
The District Court based its ruling on the threshold inquiry of determining whether the individual performs any service for the alleged employer. Id. Plaintiffs argued that because the franchise agreement required them to work full time in the store, operate the store 24 hours a day, record inventory sales, wear approved uniforms and use 7-Eleven payroll system, in addition to submitting cash reports and depositing receipts, they should be deemed employees, not independent contractors. Id. at 5. The District Court, however, was not convinced that the contractual obligations outlined in the franchise agreement, alone, constituted services under Massachusetts law regarding independent contractors. Id. Moreover, the District Court opined that although the parties do have mutual economic interests, even though both profit from the franchise stores’ revenue, that mutual interest was not enough to establish that plaintiffs provide services to support an employee relationship. Id.
In short, the District Court reasoned that where a franchisee is merely fulfilling its contractual obligations under a franchise agreement, that by itself does not refute the independent contractor status. Id. The District Court therefore granted 7-Eleven’s motion for summary judgment and denied Plaintiffs’ motion for class certification. Id. at 6.
Implications For Employers
For those companies with franchisee operations, this ruling supports the position that obligations under a franchise agreement requiring the franchisee to perform certain tasks does not establish an employment relationship. And the fact that the franchisor provides services to the franchisee for payment actually cuts against the employee designation. Further, the simple fact of mutual benefit from business revenues does not help establish employee status under these circumstances. Although an appeal from Plaintiffs is anticipated, the District Court’s analysis offers solid guidance for franchisors who are operating under similar franchise agreements.
Indiana Court Of Appeals Strikes Down Class Action COVID-19 Immunity Statute
By Gerald L. Maatman, Jr, Jennifer A. Riley, and Gregory Tsonis
Duane Morris Takeaways – In Mellowitz v. Ball State University and Board of Trustees of Ball State University, et al, No. 22A-PL-337 (Ind. Ct. App. Oct 5, 2022), the Indiana Court of Appeals struck down a 2021 law that sought to protect in-state universities from class action liability related to the shutdown of university campuses during the COVID-19 pandemic. While the law stated that individuals “may not” bring class actions against universities resulting from actions taken to defend against the spread of COVID-19, the Indiana Court of Appeals held that the statute was “procedural” and in conflict with Rule 23 of Indiana’s Rules of Trial Procedure, which states that individuals “may” proceed as a class under certain circumstances. The Court’s ruling is important, as it puts at risk other statutes passed in Indiana and other states restricting class actions against businesses for COVID-19-related claims.
Background Of The Case
In 2020, Plaintiff Keller J. Mellowitz, a student at Ball State University, filed a putative class action asserting claims for breach of contract and unjust enrichment against Ball State as a result of the university’s decision to cancel in-person classes during the COVID-19 pandemic. Id. at 3. After the complaint was filed, the Indiana General Assembly in 2021 enacted Public Law 166-2021, part of which was codified as Indiana Code Section 34-12-5-7 (“Section 7”) and barred class actions against post-secondary educational institutions for claims of breach of contract and unjust enrichment arising from COVID-19. Ball State subsequently sought relief from Plaintiff’s lawsuit under Section 7, which the trial court granted, and Plaintiff appealed. Id. at 5.
The Appellate Court’s Ruling Reversing And Remanding the Trial Court’s Decision
Plaintiff argued on appeal that, as a procedural statute, Section 7 impermissibly conflicts with Indiana Trial Rule 23, which governs class-action procedures and sets forth the requirements to proceed as a class action, thus rendering Section 7 a “nullity.” The Indiana Court of Appeals began its analysis recognizing longstanding precedent establishing that in a conflict between a procedural statute and the Indiana Rules of Trial Procedure, “the trial rules govern,” however trial rules “cannot abrogate or modify substantive law.” Id. at 6-7. Whether a law was “substantive,” the Court explained, depended on whether it established “rights and responsibilities” whereas procedural laws merely prescribed “the manner in which such rights and responsibilities may be exercised.” Id. at 7.
In analyzing the specific statutes at issue, the Court of Appeals examined Indiana’s analog to Federal Rule 23, which sets forth the criteria for bringing a class action. The Court of Appeals noted that Indiana Trial Rule 23 was indisputably a procedural rule that allows a plaintiff, when the appropriate criteria are met, to assert his or her claims on behalf of others. Turning to Section 7, the Court of Appeals explained that the statute did not affect any plaintiff’s substantive right to bring a suit for breach of contract or unjust enrichment, but simply “frustrates them by encouraging a multiplicity of lawsuits from similarly situated plaintiffs.” Id. at 14. While Ball State argued that the law protected Indiana universities from “widespread legal liability” from actions taken to combat and mitigate the spread of COVID-19, the Court of Appeals found the argument “unpersuasive,” explaining that since Section 7 did not prevent any individual plaintiff from asserting the same claims against universities, it therefore “does not reduce the institutions’ potential legal liability in the slightest.” Id. at 14-15. Ball State also argued that adopting Plaintiff’s “extreme position” would endanger two similar laws passed by the Indiana Legislature, which sought to protect business owners from class-action tort liability. Id. at 15 n.6. The Court rejected Ball State’s argument. It determined that it had “no opinion” on those statutes since they were not before it in the appeal. Id.
With Indiana Trial Rule 23 stating that a plaintiff “may” bring a class action and Section 7 stating the plaintiff “may not,” the Court of Appeals held that both laws could not apply in a given situation and, as a result, Section 7 was a “nullity.” Id. at 15. The Court of Appeals therefore reversed the trial court’s ruling and remanded the case for further proceedings.
Implications for Employers
While Ball State will very likely appeal this decision to the Indiana Supreme Court, the rationale adopted by the Indiana Court of Appeals could undermine similar statutes meant to protect Indiana employers from class action liability resulting from actions taken in response to the COVID-19 pandemic. As many other states throughout the country similarly passed laws meant to protect businesses from liability due to COVID-19, the Mellowitz decision provides a potential avenue for plaintiffs to challenge laws in other states. Mellowitz demonstrates that employers should continue to be aware of the potential for class action lawsuits stemming from response to the COVID-19 pandemic, despite efforts by Indiana’s legislature and other states’ legislatures to prevent such costly, high-risk litigation.
Alabama Federal Court Affirms $13 Million Default Judgement Against Employer In A Wage & Hour Collective Action For Discovery Failures
By: Gerald L. Maatman Jr., Jennifer A. Riley, and Aaron A. Bauer
Duane Morris Takeaways – In Hornady v. Outokumpu Stainless USA, No. 1:18-CV-317 (S.D. Ala. Oct. 4, 2022), the U.S. District Court for the Southern District of Alabama upheld its sanction of a default judgement against the defendant on all of the Fair Labor Standards Act claims brought by a collective action of current and former employees. In affirming a default judgment of approximately $13 million, the Court cited the employer’s repeated failure to produce pay records, time records and incentive plan data during discovery. Such a catastrophic outcome demonstrates the importance of reliable and honest client communication and responsible and reasonable conduct at all stages of discovery in complex employment-related litigation.
Background Of The Case
In 2018, Plaintiff William Hornady filed a collective action against his former employer Outokumpu Stainless (“OTK”) alleging violations of the Fair Labor Standards Act (“FLSA”) for overtime and timekeeping record violations. The case proceeded to discovery, and on November 18, 2021, things quickly unraveled for OTK when the Court found that the company had “acted in pervasive bad faith throughout the discovery process of this entire case…” Id. at 3. As a result, the Court sanctioned OTK by entering non-final default judgement against the company, thereby holding it liable for all of plaintiffs’ FLSA claims. Id. at 6-7. Earlier this year, OTK challenged this ruling by filing a motion to reconsider the order granting default judgement.
The Court’s Ruling Denying Reconsideration Of The Default Judgement
In seeking reconsideration of the decision to grant default judgement, OTK urged the Court to apply the “good cause” standard of review, under Rule 55 of the Federal Rules of Civil Procedure, which allows courts to evaluate many different factors such as willfulness, prejudice, and whether the defaulting party might have a meritorious defense for purposes of determining whether to reconsider an order of a default judgement. Id. at 7. However, the Court declined to apply this “good cause” standard. Instead, it to use the stricter standard of Rule 54, which allows courts to reconsider interlocutory decisions if there is “evidence of an intervening change in the controlling law, the availability of new evidence, or the need to correct clear error or manifest injustice.” Id. at 12.
Given OTK’s failure to introduce newly available evidence disputing the Court’s previous finding that defense counsel had failed to meet its “discovery obligations,” the Court rejected OTK’s argument that the Court had abused its discretion by improperly imposing “death penalty” sanctions in the form of default judgement. Id. at 14. Specifically, the Court noted that it had ordered OTK to produce pay, time, and incentive plan records on “twelve (12) separate occasions spanning almost three years.” Id. at 17-18. When OTK finally did produce pay records, they were incomplete, and did not even include rate of pay data. Id. The Court also noted that the Magistrate Judge assigned to the case had originally recommended lesser sanctions against OTK. However, while a ruling on this lesser sanction was pending, the Court opined that OTK “engaged in additional sanction-worthy behavior” during discovery. Id. at 15.
OTK attempted to shift the blame for these discovery shortcomings to its payroll software provider and former outside counsel for the case. OTK argued that it could not have produced the formula used to calculate the regular rate of pay (“RROP”) for its employees, as the Court had ordered, because this formula came from the proprietary software of ADP, which OTK would have had to obtain through a subpoena. Id. at 23-24. In reality, the Court observed that it had previously ordered OTK to subpoena ADP for this data in 2020, a year before the entry of default judgement. Id. at 24. For this reason, OTK could no longer argue that the requirement to subpoena ADP was newly available evidence that might allow the Court to reconsider its sanctions order. Moreover, the Court noted that OTK’s failure to produce the RROP data had not been its “primary failing” because OTK also failed to produce hourly pay rates. Id. at 25.
The Court also rejected OTK’s contention that its failures during the discovery process should be attributed to its former outside counsel in the case. Id. at 27-28. In support of this position, OTK submitted emails of its former counsel that purported to show that it had been “kept in the dark… as to what was actually occurring” in discovery. Id. However, the Court found that these emails could only “provide insight into a fraction of the circumstances” leading to the default judgement. Id. at 29. Regardless of whether these emails provided a legitimate excuse for all of OTK’s failures during the discovery process, the Court determined that the emails did not constitute newly available evidence, as OTK had failed to submit them to the Court when it was first facing default judgement sanctions. Id. at 30. Given this record, the Court placed the blame squarely on OTK for failing to “produce accurate and complete time and pay records.”
Implications for Employers
The $13 million sanction of a default judgment in the case is an eye-opener for any litigant. The Hornady decision demonstrates that employers who fail to actively engage and communicate with their outside counsel on a regular basis do so at their own peril. To avoid such a disastrous outcome, clients should always expect and demand regular and truthful case status updates, especially in class and collective actions where the stakes can be so high.
$228 Million Judgment Entered In First Ever BIPA Class Action Trial Before A Chicago Jury
By: Gerald L. Maatman, Jr., Jennifer A. Riley, and Alex W. Karasik
Duane Morris Synopsis: In Rogers v. BNSF Railway Co., Case No. 19-CV-03083 (N.D. Ill.), the first federal court jury trial in a case brought under the novel Illinois Biometric Information Privacy Act (“BIPA”), the plaintiffs secured a verdict in favor of the class of 45,000 workers against Defendant BNSF. After a week-long trial in the U.S. District Court for the Northern District of Illinois in Chicago, the jury found that BNSF recklessly or intentionally violated the law 45,600 times, based on the defense expert’s estimated number of drivers who had their fingerprints collected. The Court thereafter entered a judgment against BNSF for $228 million.
This landmark verdict showcases the potentially devastating impact of the BIPA statute on unwary businesses across the state of Illinois that collect, use, or store biometric information.
Case Background
Plaintiff, a truck driver, filed a class action lawsuit alleging that BNSF unlawfully required drivers entering the Company’s facilities to provide their biometric information through a fingerprint scanner. He claimed that BNSF collected the drivers’ fingerprints without first obtaining informed written consent or providing a written policy that complied with the BIPA and therefore violated sections 15(a) and (b) of the BIPA. BNSF argued that it did not operate the biometric equipment and instead sought to shift blame to a third-party vendor who operated the biometric equipment that collected drivers’ fingerprints.
The case proceeded before a jury in federal court in Chicago. The proceeding was closely watched, as it represented the very first time any class action had gone to a full trial with claims under the BIPA
The trial lasted five days. However, the jurors deliberated for just over an hour. The jurors were asked to: (1) indicate on the verdict form whether they sided with Plaintiff, and (2) if so, indicate how many times BNSF violated the BIPA negligently or how many times the company violated the statute recklessly or intentionally.
The BIPA provides for damages of $1,000 for every negligent violation, and up to $5,000 in liquidated damages for every willful or reckless violation. At the conclusion of the trial, the jury found that BNSF recklessly or intentionally violated the law 45,600 times. Accordingly, the Court entered a judgment against BNSF in the amount of $5,000 per violation, for a total amount of $228 million.
Implications For Employers
This verdict undoubtedly will embolden the plaintiffs’ class action bar and equally serve as an eye opener for businesses in Illinois. In the short term, companies can expect an uptick in the number of BIPA class actions filed by the plaintiffs’ bar. While it is almost certain that the verdict will be challenged in post-trial motions and in an appeal, companies can expect that plaintiffs’ lawyers will increase their settlement demands in other BIPA class actions.
The BIPA vastly increases the importance of adopting a strategic compliance plan for businesses that operate in Illinois. It is more important than ever for companies to implement proper mechanisms and consent forms to comply with the BIPA.
Montana Federal Court Denies Class Certification In Gender Discrimination Litigation
By Gerald L. Maatman, Jr., Jennifer A. Riley, and Michael DeMarino
Duane Morris Takeaways – In Cole, et al. v. Montana University System, at al., 21-CV-88 (D. Mont. Oct. 3, 2022), the U.S. District Court for the District of Montana recently denied certification of a Title IX class action alleging discrimination and harassment on the basis of sex. The decision in Cole is an important one for employers, as it is a reminder that Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), is still a major obstacle to class certification of broad discrimination claims. Companies and their corporate counsel are well-served to heed the lessons of Cole and center their class certification defense strategy around the commonality requirement articulated in Wal-Mart Stores, Inc.
Background Of The Case
Plaintiffs were a group of women suing Defendants for alleged violations of Title IX and sought to certify a class of approximately 76 women who allegedly experienced harassment, retaliation, and/or discrimination on the basis of their sex. Plaintiffs alleged that Defendants either forced them to resign, terminated their positions, or limited their options for professional growth. Id. at 3-5.
Specifically, Plaintiffs alleged that Defendants fostered a “good ol’ boys club” culture, favoring male athletes and employees, while excluding Plaintiffs from participating in activities and benefits regularly afforded to their male counterparts. Id. at 3-9.
Against this backdrop, Plaintiffs alleged that a “retaliatory culture blossomed” and that all Plaintiffs experienced direct retaliation or the fear of retaliation for speaking out against Defendants’ alleged discriminatory conduct. Id. at 8-9.
The Court’s Class Certification Ruling
After the parties filed competing motion papers in support of class certification, and to deny class certification, the Court issued a lengthy and thorough order, which ruled that Plaintiffs failed to satisfy the requirements for class certification. At the heart of the Court’s analysis was Rule 23(a)’s commonality requirement, which ultimately drove the Court’s decision to deny class certification.
Analyzing the evidence and the parties’ submissions, the Court noted that Plaintiffs’ claims appeared to be too disparate to be resolved in one stroke, which is key to satisfying Rule 23(a)’s commonality requirement. In reaching that conclusion, the Court relied extensively on the U.S. Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011). Specifically, the Court found that Plaintiffs failed to identify an employment practice that ties together the putative class members to satisfy the U.S. Supreme Court’s reasoning in Wal-Mart Stores, Inc.
Plaintiffs, for their part, argued that the Ninth Circuit had adopted a “permissive view of commonality” in employment discrimination claims and that the existence of shared legal issues with divergent factual predicates was sufficient to satisfy commonality. The Court, however, rejected this argument. It opined that its analysis was “constrained” by Wal-Mart Store, Inc. Id. at 17.
The Court reasoned that, according to Wal-Mart Stores, Inc., commonality requires both a shared legal theory and shared facts such that determination of one claim can answer all others. Citing Wal-Mart Stores, Inc., the Court noted that there are only two mechanisms to bring a class claim alleging broad discrimination, including: (1) show that the employer used a biased testing procedure to evaluate potential employees; or (2) provide significant proof that the employer operated under a general policy of discrimination.
Based on its analysis, the Court held that Plaintiffs failed to demonstrate that Defendants acted under a general policy of discrimination and the injuries alleged required distinct inquiries into each Plaintiff’s circumstances, qualifications, and the alleged discrimination.
For similar reasons, the Court also concluded that Plaintiffs could not satisfy Rule 23(b)’s predominance requirement because individualized issues were more prevalent than common ones and Defendants’ liability was not subject to common proof.
As a result, the Court denied Plaintiffs’ motion for class certification without prejudice.
Implications For Employers
The ruling in Cole underscores the importance that Wal-Mart Stores, Inc. v. Dukes plays in employment discrimination cases. At times, the Court was sympathetic to Plaintiffs, and recognized the inherent evidentiary problems in broad employment discrimination cases. The Court even lamented the “harsh nature of the standard as imposed on a discrimination case.” Id. Nevertheless, Wal-Mart Stores, Inc. proved to be too much of an obstacle to Plaintiffs’ class certification theories.
The lesson from this decision is that employers should center their class certification defense strategy on the key holdings in Wal-Mart Stores, Inc., particularly the fact that commonality requires both a shared legal theory and shared facts. Cole teaches that because it is somewhat easier for plaintiffs to assert shared legal theories, employers should focus on divergent facts.
Illinois District Court Rejects “Trio” Of BIPA Defenses in Denying Motion to Dismiss
By: Gerald L. Maatman, Jr., Jennifer A. Riley, and Tyler Z. Zmick
Duane Morris Takeaways: In Trio v. Turing Video, Inc., No. 21-CV-4409, 2022 WL 4466050 (N.D. Ill. Sept. 26, 2022), the Court issued yet another plaintiff-friendly decision under the Illinois Biometric Information Privacy Act (“BIPA”), putting businesses on notice that the statute can apply to technology used to screen individuals for purposes of preventing the spread of COVID-19. The Court denied the three arguments raised in the Defendant’s motion to dismiss, and held that: (1) personal jurisdiction existed because the Defendant sent “biometric” devices to multiple Illinois-based customers; (2) the Plaintiff’s claims were not preempted by the Labor Management Relations Act; and (3) Plaintiff adequately alleged claims under BIPA. The ruling in Trio ought to be required reading for corporate counsel dealing with privacy class action litigation.
Background
Plaintiff alleged that Defendant Turing Video, Inc. sold “products integrated with artificial intelligence,” including the Turing Shield, a “kiosk that allows Turing’s customers to screen their employees for COVID-19.” See Mem. Op. & Order at 2. According to Plaintiff, the Turing Shield works by screening a user’s temperature through the device’s camera, thereby using its “artificial intelligence algorithm” to recognize the user based on his or her facial geometry, and detecting whether the user is wearing a protective mask. Plaintiff also alleged that data collected through the Turing Shield was transmitted to third parties who host that data.
Plaintiff previously worked in Illinois for New Albertson’s, Inc. d/b/a Jewel-Osco, where she used the Turing Shield at the start of each workday as part of the store’s COVID-19 screening process. Based on her use of the device, Plaintiff claimed that Turing violated the BIPA by: (i) failing to inform her that the Turing Shield would collect her biometric data, and (ii) disseminating her biometric data to third parties without her consent.
Turing moved to dismiss on three grounds, including: (1) that the Court lacked personal jurisdiction; (2) Plaintiff’s claims were preempted by the Labor Management Relations Act; and (3) Plaintiff failed to state a claim upon which relief could be granted.
The Court’s Decision
The Court denied Turing’s motion to dismiss on all three grounds.
Personal Jurisdiction
Turing argued that the Court lacked specific personal jurisdiction because Turing was a non-forum (i.e., California) resident that sold the devices used by Plaintiff to a non-party, Jewel-Osco (also a non-forum resident), and Jewel-Osco brought the devices into Illinois without Turing’s involvement.
The Court held that the evidence – which showed Turing had over 30 Illinois-based customers and had shipped Turing Shields into Illinois – established that Turing had the requisite minimum contacts with Illinois to establish personal jurisdiction.
Labor Management Relations Act Preemption
The Court next addressed Turing’s argument that Plaintiff’s claims were preempted by Section 301 of the Labor Management Relations Act (the “LMRA”), which establishes federal jurisdiction over “suits for violations of contracts between an employer and a labor organization representing employees in an industry affecting commerce.” Courts typically interpret Section 301 as preempting state law claims that are “substantially dependent on analysis of a collective-bargaining agreement.” Id. at 18.
Here, Plaintiff was represented by a union and subject to a collective bargaining agreement (“CBA”) while employed at Jewel-Osco. Based on those facts, Turing claimed that resolving Plaintiff’s BIPA claims for alleged privacy invasions sustained through her work required the Court to interpret the CBA. The Court disagreed. It held that Plaintiff’s claims were not preempted because the Court could resolve the claims without interpreting the CBA.
The Court recognized that the Seventh Circuit has held that federal law preempts BIPA claims brought by certain union-represented employees against their employers. See Miller v. Southwest Airlines Co., 926 F.3d 898, 903 (7th Cir. 2019); Fernandez v. Kerry, Inc., 14 F.4th 644, 646-47 (7th Cir. 2021). The Court distinguished those cases because Turing was not a party to the CBA, and “Turing’s obligations under BIPA stand wholly independent of whether Plaintiff’s union may have consented to Jewel-Osco . . . collecting and disseminating her biometric data. In other words, resolution of the state law BIPA claims would not require this Court to interpret any [CBA], and instead depend upon the entirely unrelated question of whether Turing provided Plaintiff with the necessary disclosures and obtained from her the required written release before it collected and disseminated her biometric information.” Mem. Op. & Order at 20-21.
Extraterritoriality & PREP Act Immunity
Finally, the Court rejected Turing’s arguments that: (i) Plaintiff failed to allege that Turing’s relevant conduct occurred in Illinois, and (ii) the Public Readiness and Emergency Preparedness Act (the “PREP Act”) immunized Turing from BIPA liability. Regarding extraterritoriality, the Court held that Plaintiff sufficiently alleged that Turing’s conduct occurred “primarily and substantially” in Illinois, thereby satisfying the “extraterritoriality doctrine.” Id. at 25. Regarding PREP Act immunity, the Court noted that the PREP Act provides immunity from liability relating to the “use of a covered countermeasure” upon the declaration of a public health emergency by the Secretary of the Department of Health and Human Services. The Court held that PREP Act immunity did not apply because the Food and Drug Administration had not approved the Turing Shield, meaning the device did not satisfy the definition of a “covered countermeasure.” Id. at 28.
Conclusion
Trio can be added to the list of recent plaintiff-friendly BIPA decisions, as it reinforces the growing consensus that multiple private entities can be subject to liability under the statute for what may seem like a single “violation.”
The case also raises a potential hurdle to asserting jurisdictional defenses to BIPA claims based on its holding that personal jurisdiction can exist even where the defendant does not send into Illinois the specific device used to collect a plaintiff’s “biometric” data. Other courts, however, appear more willing to dismiss BIPA claims on personal jurisdiction grounds. See, e.g., Gutierrez v. Wemagine.AI LLP, Case No. 21-CV-5702, ECF No. 32, Mem. Op. & Order at 1 (N.D. Ill. Oct. 7, 2022) (available here) (dismissing BIPA case for lack of personal jurisdiction despite plaintiffs’ allegation that defendant’s app “derives substantial revenue from nearly 5,000 Illinois-based users”).
California Dreaming For Employers: U.S. Supreme Court Orders California State Court of Appeal To Reconsider Denial Of Arbitration In PAGA Case
By: Gerald L. Maatman, Jr., Jennifer A. Riley, and Rebecca S. Bjork
Duane Morris Takeaways: On October 3, 2022, the Supreme Court of the United States granted certiorari, reversed, and remanded a case seeking review of a motion to compel arbitration in a California Private Attorney General Act (“PAGA”) labor law case entitled Dolgen California, LLC v. Galarsa, No. 21-1444 (U.S. Order List, Oct. 3, 2022). Granting Dollar General’s specific request, the Supreme Court ordered the California Court of Appeal to reconsider its decision affirming a trial court’s denial of the company’s motion to compel arbitration. That court held that the waiver of representative actions in the plaintiff’s arbitration agreement was unenforceable under California law. This is only one of several cases pending in California courts involving arbitration agreements that waive an employee’s right to bring a representative action under the PAGA that are being revisited in light of the U.S. Supreme Court’s ruling in Viking River Cruises, Inc. v Moriana (No. 20-1573, June 15, 2022). As a result, employers will soon have a better understanding of how PAGA representative action waivers will be interpreted in California within the now-controlling framework of the Federal Arbitration Act.
The Holding In Viking River Cruises, Inc. v. Moriana
Earlier this year, on June 15, 2022, the U.S. Supreme Court issued its long-awaited ruling in Viking River Cruises, Inc. v. Moriana. Companies with California-based workforces watched the case closely because it represented an opportunity to clarify the extent to which a court-made rule established by the California Supreme Court back in 2014 could co-exist with the Federal Arbitration Act (“FAA”). The FAA has long been found to favor the enforcement of arbitration agreements, including waivers of class and other representative claims. But the California Supreme Court’s decision made it impossible for class waivers to be enforceable under state law as a result of its decision in Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 387-88 (2014) (holding that a “PAGA claim lies outside the [FAA]’s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship,” but is instead “a dispute between an employer and the state”).
In a complex and lengthy opinion, the Supreme Court held in Viking River that “the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.” (Slip Op. at 20.) “This prohibition on contractual division of PAGA actions into constituent claims unduly circumscribes the freedom of parties to determine ‘the issues subject to arbitration’ and ‘the rules by which they will arbitrate,’ and does so in a way that violates the fundamental principle that ‘arbitration is a matter of consent[.]’” (Id. at 18 (citations omitted).) In short, representative PAGA claims can now be subject to waiver in an arbitration agreement because “state law cannot condition the enforceability of an arbitration agreement on the availability of a procedural mechanism that would permit a party to expand the scope of the arbitration by introducing claims that the parties did not jointly agree to arbitrate.” (Id.)
Dollar General’s Petition For Certiorari
Dollar General filed a petition for certiorari while Viking River was pending, expressly asking the Supreme Court to hold the petition pending a decision in that case. It requested that once Viking River was decided, the Supreme Court should at that time grant Dollar General’s petition, vacate the California Court of Appeal decision below, and remand the case to that court for reconsideration in light of Viking River (known to Supreme Court practitioners as a “GVR” order). The facts in the Dollar General case are strikingly similar to those at issue in Viking River, and the company’s petition described the question presented as “Does the FAA require enforcement of a bilateral arbitration agreement providing that an employee cannot assert representative claims, including under PAGA?”
The U.S. Supreme Court’s GVR Order
On October 3, 2022, the Supreme Court did what Dollar General expressly asked it to do. (See Order List, Oct. 3, 2022.)
As is typical with GVR orders, there is no explanation of the reasoning behind the order, except that the California Court of Appeal is instructed to apply the reasoning of Viking River on remand. The California Court of Appeal now will soon reconsider its affirmation of the trial court’s denial of Dollar General’s motion to compel the plaintiff’s claim to an individual, non-representative arbitration proceeding.
Implications For Employers
Employers have long known that if they have operations in California, special attention must be paid to state law provisions that impose restrictions on employment practices unlike those in any other state. Now that the U.S. Supreme Court has ruled that the FAA preempts the court-made rule of Iskanian that precluded splitting representative PAGA claims from individual claims, it is likely that California courts will modify their enforcement of representative action waivers in arbitration agreements. But because this is California, wary employers would be wise to stay tuned for further developments in this rapidly changing area of the law.
Don’t Mess With Texas: Federal Judge Rules That The EEOC’s Guidance On LGBTQ Employees And Bostock Is Invalid
By: Gerald L. Maatman, Jr., Jennifer A. Riley, and Rebecca S. Bjork
Duane Morris Takeaways: On October 1, 2022, in Texas v. EEOC, No. 21-CV-194 (N.D. Tex. Oct. 1, 2022), Judge Matthew Kacsmaryk of the U.S. District Court for the Northern District of Texas ruled that the EEOC’s guidance on Bostock v. Clayton County, Georgia, 140 S.Ct. 1731 (2021), was invalid and unlawful. The EEOC’s guidance sought to delineate workplace protections for LGBTQ employees relative to general workplace policies, including obligations related to dress codes, use of bathrooms, and preferred pronouns. The Court agreed with the legal challenge mounted by the State of Texas over the Commission’s guidance. While the final chapter on these issues is far from written, employers should consider the ruling in Texas v. EEOC as part of a broader analysis of EEOC workplace regulations and the ever expanding array of issues involving appropriate workplace personnel policies.
The EEOC’s Guidance
On June 15, 2021, the Commission issued guidance on its interpretation of Bostock on the one-year anniversary of the U.S. Supreme Court’s ruling. Bostock, in a 6 to 3 decision, held that Title VII of the Civil Rights Act of 1964 prohibits discrimination against employees based on their sexual orientation or gender identity.
The EEOC’s guidance on Bostock – which can be accessed here – asserted that employers were obligated to accommodate LGBTQ employees regarding dress codes, use of identifying pronouns, and bathrooms and locker rooms. Critics of the Commission claimed that the guidance went far beyond the holding in Bostock and constituted impermissible rulemaking.
The Legal Challenge Of Texas
In what only can be deemed an extraordinary legal challenge, the Texas Attorney General sued the EEOC and sought declaratory and injunctive relief to invalidate the EEOC’s guidance and enjoin its enforcement and implementation. The lawsuit also challenged an analogous set of regulations issued by the U.S. Department of Health and Human Services (“HHS”). After rulings on procedural issues, Texas brought a motion for summary judgment on the grounds that: (i) the guidance of both agencies was inconsistent with the law; (ii) was arbitrary and capricious; and (iii) constituted improper rulemaking without following applicable notice-and-comment rulemaking procedures under the Administrative Procedure Act (“APA”).
The Court’s Decision
Judge Kacsmarky agreed with Texas, rejected the positions of the EEOC and the HHS, and granted summary judgment against the agencies.
The key aspect of the decision focused on the reach of Bostock. Judge Kacsmarky opined that the U.S. Supreme Court confined its ruling to a holding that Title VII banned workplace bias due to an employee’s “homosexual or transgender status.” Id. at 6. In analyzing Bostock, Judge Kacsmarky determined that the EEOC and the HHS misread the Supreme Court’s opinion. Id. at 7-14. He held that Bostock did not extend to “correlated conduct,” such as dress, bathrooms, use of pronouns, or healthcare practices. Id. at 4.
Based on this reasoning, Judge Kacsmarky ruled that the EEOC and HHS violated Title VII and the APA by issuing what he deemed the equivalent of substantive, legislative rules through improper procedures. As a remedy, he declared the guidance unlawful, set it aside, and awarded attorneys’ fees and costs to Texas.
Implications For Employers
The ruling in Texas v. EEOC reflects a judicial finding that the Commission acted inappropriately in attempting to push the legal envelope in terms of how Bostock should be read to obligate employers to accommodate LGBTQ employees in the workplace. That said, the ruling is unlikely to shut down the Commission’s efforts to push for expansive interpretations of the boundaries of Title VII. Employers can expect the Commission to pursue other test cases and litigate over the interpretation of Bostock for the foreseeable future. Furthermore, the Commission is apt to appeal the ruling in Texas v. EEOC to the U.S. Court of Appeal for the Fifth Circuit. Stay tuned!